Malaysia Jet’s Mystery Disappearance Leaves Liability Riddles

As the final hours of Malaysian Air Flight MH370 remain wrapped in mystery, the question of who bears full liability for the jet’s disappearance is also unresolved.

This much is clear: Families of the 227 passengers aboard the flight that vanished on March 8 can recover some compensation from Malaysian Airline System Bhd even if the plane isn’t found. The airline is liable under international treaty for as much as $175,000 per passenger, and possibly more.

For survivors to capture significantly greater damages wreckage would probably have to be located and a narrative of the plane’s demise assembled. Several scenarios have been offered for the flight’s disappearance, including hijacking, intentional downing or an on-board fire. Evidence of any of these could open avenues for family members to sue.

“The disappearance of Flight 370 remains a mystery. The legal claims against Malaysia Airlines — those are not a mystery,” said Robert Hedrick, a pilot and air-disaster lawyer in Seattle. “If the wreckage is located, the evidence may establish liability of other parties.”

Malaysian Prime Minister Najib Razak appeared to narrow the band of speculation yesterday, saying that based on satellite data, the plane ended up in the Indian Ocean west of Perth, Australia — ruling out theories that it took a detour over Asia.

“This is a remote location, far from any possible landing sites,” Najib said at a news conference in Kuala Lumpur, citing an analysis of data from satellite provider Inmarsat Plc and the U.K. Air Accidents Investigation. “It is therefore with deep sadness and regret that I must inform you that according to this new data, flight MH370 ended in the southern Indian Ocean.”

‘Shameless Actions’

Malaysian Air offered its condolences to passengers’ families and said in a statement that it had sought to notify families ahead of the prime minister’s message in person, by telephone and by text message.

About two-thirds of the travelers aboard were Chinese, and relatives gathered in a Beijing hotel yesterday responded with grief and anger. “All my family are gone,” screamed one woman who emerged from the ballroom.

One relatives’ group condemned yesterday’s announcements as “without any direct proof.” In a statement, the group, which calls itself Relatives of the 154 Chinese Passengers of MH370, accused the carrier, Malaysian government and Malaysian military of delays and cover-ups during the 18 days since the flight’s disappearance, and vowed to hold those parties accountable.

“Their despicable and shameless actions have deceived and destroyed the hearts of our relatives of 154 Chinese passengers, misled and delayed the search efforts, wasted manpower and material resources and led to the loss of the precious rescue time,” it said.

Search Plane

An Australian search plane has found two objects, one circular and one rectangular, in the southern Indian Ocean, Malaysian Acting Transport Minister Hishammuddin Hussein said today.

The Montreal Convention of 1999, an international treaty that covers air travel, requires carriers to pay damages for each passenger killed or injured in an accident, even if its cause is unknown. By those rules, the airline’s liability could stand at more than $40 million.

Under the convention, claims against the airline will probably be litigated in China and Malaysia, the home countries of most of the passengers on the Kuala Lumpur-Beijing route, and both signatories to the pact. The treaty caps an airline’s damages at the equivalent of about $175,000 if the carrier can prove it wasn’t negligent or that a third party, such as terrorists or a manufacturer, were solely at fault. If it can’t mount such a defense, its liability could be much higher.

Damages Capped

Survivors’ best chance for seeking more would be to find a way to sue in the U.S., where awards and settlements can be more generous than in the two Asian countries.

“The U.S. is always the best choice to file a lawsuit,” said Hao Junbo, a Beijing-based lawyer who specializes in aviation law. “The families may try and take a shot there. The problem is we haven’t seen any evidence to link it to the U.S. to file a claim there.”

One such scenario, lawyers said, would be for plaintiffs to allege that the missing 777’s manufacturer, Chicago-based Boeing Co., was at fault. John Dern, a Boeing spokesman, declined to comment on any possible liability issues connected to Flight 370.

Should terrorism emerge as a possible cause, survivors’ lawyers could seek to recover funds from terrorist groups and their sponsors.

Payments Considered

Malaysian Air said that while its insurers are studying the issue of compensation based on the Montreal Convention, it is considering an advance payment to all the families “in the coming weeks.”

“Our top priority remains to provide any and all assistance to the families of the passengers and crew,” the airline said in an e-mailed statement.

The carrier said it has “adequate insurance coverage in place to meet all reasonable costs” of the disaster, including assisting families amid the search. It has already made financial-assistance offers to families of about $5,000 each.

Munich-based Allianz SE, Malaysian Air’s lead insurer on the lost aircraft, said it has made initial payments into a trust account, on the aircraft and on airline liability, which it said is routine. [IJ Ed. Note: Alllianz has confirmed that it is effectively the lead reinsurer.]

Two-Year Search

Families have sometimes received compensation before a plane’s fate is learned, such as when Air France Flight 447 vanished between Rio de Janeiro and Paris in 2009. While wreckage was found floating in the sea days later, it took two years before the jet’s black-box recorders were discovered at the bottom of the Atlantic Ocean, from which investigators pieced together pilots’ struggles to recover from a stall.

In the case of Flight 370, the absence of evidence such as wreckage, complete flight data and cockpit recordings may make it difficult for Malaysian Air to exonerate itself and avoid additional damages, said Hedrick. An unsolved mystery would also make it harder for families to determine whether others beyond the airline may share responsibility for their loss.

In Malaysia, as in many U.S. states, a missing person can be declared dead after they’re absent, without evidence they’re alive, for seven years. The period in China is usually two years, said Hao, the Beijing lawyer.

Disasters

In disasters or other incidents in which someone would be presumed to have died, courts can declare missing persons dead within weeks or months. Some of the victims of Pan Am 103, which was destroyed by a bomb over Lockerbie, Scotland, and many of those killed in the Sept. 11, 2001, terrorist attacks were quickly declared dead although their bodies weren’t recovered.

Families of Chinese passengers, the largest group aboard, are likely to choose to make their claims in their home country, Hao said.

“Chinese courts, Chinese judges will be more sympathetic to the Chinese victims,” said the lawyer, who represented families of a China Eastern Airline Corp. flight that crashed in 2004.

That case, in which Hao said he represented the families of 32 crash victims, was the first airline disaster lawsuit to be accepted by a Chinese court. Hao settled the suit, in which the settlement wasn’t disclosed.

The airline is likely to have an interest in settling with families rather than fighting in court, said Ravindra Kumar, a Kuala Lumpur-based lawyer at Raja, Darryl & Loh.

“I don’t think they want further publicity and would certainly try and resolve this amicably,” Kumar said.